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For high-net-worth individuals, estate planning is an opportunity to preserve wealth, provide for future generations, protect family businesses, and ensure assets are distributed according to your wishes. With recent changes to federal estate tax laws, now is an excellent time to review your estate plan.
The federal lifetime estate, gift, and generation-skipping transfer (GST) tax exemption is $13.99 million per individual for 2025. Under the Tax Cuts and Jobs Act (TCJA), this exemption was scheduled to sunset after December 31, 2025, reducing the exemption by approximately one-half beginning in 2026. However, the One Big Beautiful Bill Act permanently increased the exemption to $15 million per individual beginning in 2026, with future inflation adjustments.
For Minnesota residents, it is important to remember that state law differs from federal law. Minnesota imposes its own estate tax with a $3 million estate tax exemption per individual, which is substantially lower than the federal exemption. Additionally, while Minnesota does not have a separate gift tax, certain taxable gifts made within three years of death are added back to the taxable estate for Minnesota estate tax purposes.
For married couples, one of the most significant estate planning benefits is the unlimited marital deduction. Generally, assets passing outright, or through certain qualifying trusts, to a surviving U.S. citizen spouse are not subject to federal estate tax upon the death of the first spouse. Instead, any applicable federal estate tax is generally deferred until the surviving spouse’s death or another taxable transfer.
Assets that do not qualify for the marital deduction, such as those passing directly to children, other beneficiaries, or certain non-qualifying trusts, are applied against the deceased spouse’s available federal estate tax exemption. To the extent those transfers exceed the available exemption, they may be subject to federal estate tax. Because of this, thoughtful planning is important to maximize the use of each spouse’s exemption while balancing family and financial objectives.
This is where portability becomes an important estate planning tool. If the first spouse dies without fully utilizing their federal estate tax exemption, the surviving spouse may elect to preserve the deceased spouse’s unused exemption, commonly referred to as the Deceased Spousal Unused Exclusion (DSUE). This election is not automatic and requires the filing of a timely federal estate tax return (Form 706), even if no federal estate tax is due. Electing portability can significantly increase the surviving spouse’s available federal estate tax exemption. While Minnesota recognizes the marital deduction and allows the tax-free transfer of assets to a surviving spouse, it does not recognize portability. As a result, a deceased spouse’s unused Minnesota estate tax exemption cannot be transferred to the surviving spouse, making separate state estate tax planning especially important for married couples.
Start With Your Goals
Every estate plan should begin with understanding your objectives. Whether your priority is minimizing estate taxes, preserving a family business, providing for your children or grandchildren, or supporting charitable organizations, your planning strategy should reflect those goals.
Consider Lifetime Gifting
Making gifts during your lifetime can be an effective way to transfer wealth and reduce the size of your taxable estate. In addition to annual exclusion gifts, larger lifetime gifts may remove future appreciation from your estate while allowing your beneficiaries to enjoy those assets sooner.
However, Minnesota residents should coordinate any gifting strategy carefully, as gifts made within three years of death may still affect the calculation of Minnesota estate tax.
Utilize Trust Planning
Trusts remain one of the most versatile estate planning tools available. Depending on your family’s objectives, trusts can help reduce estate taxes, protect assets, provide for future generations, and maintain greater control over how assets are ultimately distributed.
Even when a trust does not reduce estate taxes, it can still provide significant benefits. For example, assets titled in a revocable living trust generally avoid probate, allowing for a more efficient and private transfer of assets to beneficiaries while remaining includable in the grantor’s taxable estate. Other trust strategies, such as Spousal Lifetime Access Trusts (SLATs) and Irrevocable Life Insurance Trusts (ILITs), may provide additional estate tax and asset protection benefits depending on your goals.
Plan for Business Succession
For business owners, estate planning should also include a succession plan. Proper planning can facilitate the transfer of ownership, minimize tax consequences, and reduce the likelihood of disputes among family members or business partners. Beginning this process early generally provides the greatest flexibility.
Review Your Plan Regularly
Estate planning is not a one-time event. Changes in tax laws, asset values, family circumstances, and business interests can all affect your existing plan. Regular reviews with your CPA and estate planning attorney help ensure your plan continues to reflect your goals while taking advantage of available planning opportunities.
Although the federal estate tax exemption has increased significantly, estate planning remains just as important as ever. Many Minnesota families may still have state estate tax exposure despite being well below the federal exemption amount. A thoughtful estate plan can help preserve wealth, minimize taxes, simplify estate administration, and provide peace of mind for you and your family.
At Froehling Anderson, our Plymouth and St. Cloud, Minnesota based accountants work closely with individuals, families, attorneys, and financial advisors to develop estate and gift planning strategies tailored to each client’s unique circumstances and long-term goals.
Connect with us today to learn more about how we can become a strategic partner for your estate and gift planning needs.
Disclaimer: This article is intended for general informational purposes only and should not be considered legal or tax advice. Estate and gift planning strategies should be evaluated based on your individual circumstances in consultation with your professional advisors.
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